Basics of Union Budget

Sohini Mukherjee
What is Budget??
• Budget is the balance of expected income and
expenditure of Government in coming financial year.

• Budget comes from a French word “buguet” which means

leather bag.
Some Information
 The first budget in India was presented by James
Wilson in 1860.

 The first budget of independent India was presented by

R.K. Shanmugam Chetty on 26th November, 1947.

 Maximum number of budgets presented by Morarji

Desai (10 times)
In the Constitution, according to article 112, The word „budget‟ is
replaced by “Annual Financial Statement”

Budget is prepared by Department of

economic affairs under ministry of Finance
under government of India.
 Budget is presented by the Finance
Minister on 1st working day of February.

 Budget is approved by Parliament and

applicable from 1st April.

 Budget expenditure from Consolidated

Fund of India. (Article 266).

 On the working „yesterday‟ of the budget

day, the FM presents the Economic
Survey.
 1st Rail Budget presented in 1924 on recommendation of
Acworth Committee.
 1st Rail Budget after Independence presented by John
Mathai
 Last Rail Budget presented in 2016 by Suresh Prabhu.
Some Important Definition
Revenue Income/Receipt :

All these income which

neither increases financial
liabilities nor reduces asset

Ex : 1) Tax - Direct Tax,

Indirect Tax

2) None Tax – Fees,

Fine/Penalty, License issue,
Interest Received. PSU
dividend, aids/ grants
Capital Income/ Receipts:

• All those income which either increased financial liability or

reduces asset.

• Ex.: Borrowings of loan, disinvestment

Government Expenditure

• Developmental Expenditure: all expenditures of productive

nature are developmental such as, dams, bridges, roads,
railways etc- all investments.

• Non-developmental Expenditure: the expenditures which

are of consumption kind and do not involve any production
are non-developmental. Such as, subsidies, pensions,
defence expenses, paying salaries, interest payments etc.
• In the financial year 1987-88, there was a terminology
change in Indian public finance literature when
developmental and non-developmental expenditure were
replaced by Plan and non-Plan expenditure (the definition is
same)- Suggested by Sukhomoy Chakravarti Committee.

• A high power panel headed by Dr. C. Rangaragan, in Sept,

2011, suggested for redefining Plan and Non-Plan
expenditure as Capital and Revenue expenditure
respectively.
Government‟s Expenditure
 Revenue Expenditure / Non-
planned Expenditure:
 It neither decreases financial
liability nor increases asset.
 Ex: Old age pension, interest
payment by govt., government
employee salary, subsidy etc.
 Non Productive
 Non Development
 Recurring
 Short term plan (1 year or less)
Capital Expenditure / Planned Expenditure:
It is either decreases financial liability or increased
asset.
Ex: Investment (Purchase of share/asset), Interest
payment on Loan, Borrowing.
Productive
Development
Non Recurring
Long term plan (more than 1 year)
 Situations of Budget
 Surplus Budget:
Income/ Receipt > Expenditure
 Balanced Budget:
Income/ Receipt = Expenditure
 Deficit Budget:
Income/ Receipt < Expenditure
Budget Deficit:

 When Total Expenditure > Total Income/ Receipt

 Total Expenditure (Revenue + Capital) – Total Income

(Revenue + Capital)
Revenue Deficit:

 When Revenue Expenditure

> Revenue Income/ receipt

 Revenue Expenditure –
Revenue Income/ receipt
Capital Deficit:

 When Capital Expenditure > Capital Income/ receipt

 Capital Expenditure – Capital Income/ receipt

Fiscal Deficit:

 When balance of the government‟s

total receipts (revenue+capital
recepts) and total expenditures
(revenue+capital expenditure)
truns out to be negative.

 Total Expenditure –Total Income/

receipt (excluding borrowings)
Primary Deficit:

 It shows the fiscal deficit for a year

in which the economy has not to
fulfill any interest payment on the
different loans and liabilities.

 Fiscal deficit – Interest Payment

Effective Revenue Deficit:

 Effective Revenue deficit (ERD) is a new term introduced

in the „Union Budget‟ 2011-12.

 Revenue Receipt- Grants for creation of capital assets

(GoCA).

 GoCA includes the GoI grants forwarded to the states

and UTs for implementation of centrally sponsored
programmers such as, Pradhan Mantri Gram Sadak
Yojana, Jawaharlal Nehru National Urban Renewal
Mission etc.
Monetized Deficit:

 The part of the fiscal deficit which was provided by the

RBI to the govt. in a particular year is Monetized Deficit.
 Deficit Financing
The act/process of financing/supporting a deficit budget by a
government is deficit financing.
 Means of Deficit Financing
When Government tries to minimize the deficit by different way, it is called deficit
financing.

 Borrowing from International Organization- External Aids and External Grants

 Borrowing from other country- External Borrowings

 Borrowing from Public- Internal Borrowing

 Printing Currency- a) increases inflation proportionately & b) pressure on govt. to

upward revision in wages and salaries of government employees.

 Borrowing from RBI

 Disinvestment

 Increasing tax
 FRBM Act 2003
(Fiscal Responsibility and Budget Management)
 To control deficit in budget.

 To improve fiscal management.

 Transparency in fiscal operation.

 Coordination between fiscal and

monetary policies.

 Applicable – July 2004

 Fiscal Deficit reduced by 0.3% each year & reach to 3% of GDP in

2008-09

 Revenue Deficit reduced by 0.5% each year & reach to 0% in 2008-

09.
Virtual digital asset to be taxed at
30%.
Important Data to be Remembered
What are the sources of income for the government?
References for more studies
Books:
• Ramesh Singh
•Nitin Singhania

Websites:
• https://www.indiabudget.gov.in/
 Sample Questions
The difference between revenue deficit and grants for creation of capital assets is called
A. Fiscal deficit
B. Budget deficit
C. Effective revenue deficit
D. Primary deficit

Who presents Budget in Parliament?

A. Prime Minister
B. Finance Minister
C. Home Minister
D. President of India

Who presented India’s first-ever budget?

A. James Wilson
B. Jawaharlal Nehru
C. Lord Mountbatten
D. C Rajagopalachari

The difference between revenue expenditure and revenue receipts is

A. Revenue deficit
B. Fiscal deficit
C. Budget deficit
D. Primary deficit

Who holds the record for delivering the shortest Budget speech in India?
1.Dr. Manmohan Singh
2.Arun Jaitley
3.Hirubhai Mulljibhai Patel
4.Jaswant Singh
The difference between total expenditure and total receipts is
A. Fiscal deficit
B. Budget deficit
C. Primary deficit
D. Revenue deficit

The difference between total expenditure and total receipts except loans and other liabilities is called
A. Fiscal deficit
B. Budget deficit
C. Primary deficit
D. Revenue deficit

The difference between fiscal deficit and interest payment during the year is called
A. Fiscal deficit
B. Budget deficit
C. Primary deficit
D. Revenue deficit

In which of the following type of economy, the revenue from taxation is likely to be the least?
A. Free market Economy
B. Keynsian Economy
C. Mixed Economy
D. Socialist Economy

Which of the following is an imprest placed at the disposal of the President of India to facilitate Government to meet urgent
unforeseen expenditure pending authorization from Parliament?
A. Consolidated Fund
B. Public Fund
C. Prime Ministers Relief Fund
D. Contingency Fund
Tax imposed on imports and exports of goods when they are transported across the international borders is known
as______.
A. Sales Tax
B. Value Added Tax
C. Customs Duty
D. Trade Tax
Ans: C

When was India's first Budget introduced?

A. 7 April 1860
B. 1 February 1948
C. 26 November 1947
D. 12 October 1947
Ans: A

Who presented the first Union Budget of Independent India?

A. CD Deshmukh
B. RK Shanmukham Chetty
C. Moraji Desai
D. Jawaharlal Nehru
Ans: B

Who holds the record for delivering the longest Budget speech in India?
A. Nirmala Sitharaman
B. Arun Jaitley
C. Indira Gandhi
D. Jawaharlal Nehru
Ans: A

The word "Budget" is derived from which French word that means a "Small Bag"?
A. Budgetto
B. Budgetale
C. Budgatte
D. Bougette
Ans: D